How can I build credit as an international student?

As an international student, it may be useful to think about building credit while attending college in the U.S. Building a credit history of on-time payments is a necessity for living in the U.S., including securing housing and utility services. Most of the transactions that happen in daily life are paid by credit or debit cards instead of cash. A good credit history can benefit you through lower interest rates on personal or mortgage loans and even lower security deposits when you rent an apartment. Here are some steps you can go through to start building your credit history.

Step 1: Find an on-campus job to get a SSN

SSN stands for Social Security Number. It’s a national identification number for taxation and other purposes issued by the Social Security Administration. As an international student, you probably would not allowed to work off-campus due to the F1 visa status. However, you can find an on-campus job and work 20 hours or less on a weekly basis.

Step 2: Apply for credit cards

It may not be easy at the beginning to get a card that fit your needs. Credit cards have different perks or advantages. For example, some feature balance transfers, low interest rates, rewards/cash back, or airline points.

You can always apply for secured credit cards even if you don’t have a SSN. These cards are backed with a deposit account as collateral. The deposit is likely to be 100% to 200% of the amount of the credit you want to get. However, keep in mind, different banks have different policies on credit card issuance and not all banks offer secured credit card. Therefore, do your research before applying for any credit cards or ask a banker in your local banks for any available offers.

Step 3: Manage your credit history

Use your credit wisely and make sure to pay off the balance on time. The University of Illinois Extension has great resources on how to manage your credit history on its website. These materials will give you a better understanding of credit history and how to manage it wisely. Peer educators with the Financial Wellness for College Students program also have office hours, and you are more than welcome to make an appointment with a peer educator to discuss credit cards.

Written by: Zige He, Financial Wellness Peer Educator, and Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension

How does the time value of money help young investors?

The time value of money concept is one of the most important factors individuals face when it comes to investing assets. Time value of money is the idea that money available today is worth more than the same amount of money available at a future date, because of interest earning potential.

Let’s say you are offered $100 today, or were given the opportunity to collect $100 one year from now. Would you take the money now, or later? Your best option would be to accept the $100 today, because of interest earning potential and opportunity cost.

Taking the payment today would allow you to invest your money in a savings vehicle like a savings account or money market account. Investing your money allows you to earn interest, meaning the bank is paying you a small percentage for using your deposited funds. Therefore, depositing your money in a savings account will allow your money to grow every year.

Going back to the example, the opportunity cost of choosing to defer a $100 payment today is the interest you could have earned through investing your money. Opportunity cost is a trade-off between what you chose and what you could have had. For instance, if you pay $10 for a movie ticket, your cost of attending the movie is not only the $10, but also the time and value of what you could have enjoyed doing instead of going to the movie. That being said, when choosing to spend or save your money, it is important to think about the opportunity cost of your decision, making sure that the benefits outweigh the costs.

The main idea of the time value of money is that as a young investor, you should start saving as soon as possible! The sooner you invest, the higher your interest earning potential, and thus, the more likely your money will grow over time.

Written by Jessica Wesser, Financial Wellness Peer Educator, University of Illinois Extension

What information should I consider before borrowing a student loan?

Student loans are a common and convenient source of funding used by more than half of the students at the University of Illinois to help pay for their education. Many students do need to borrow and consider this a wise investment in their future. Before borrowing a student loan, consider this important information:

  • Borrow only what you need and can reasonably repay.
  • Develop a realistic budget and consider ways to lower your costs.
  • Research the average pay of your chosen field to know if your projected earnings will be enough to repay your student loans.
  • Keep track of your loan debt (principal and any accrued interest) so you will know the amount you will have to repay.
  • Know that repaying your student loan on time can help establish and maintain an excellent credit history.
  • Be aware that student loans are in your name and affect your credit history, so you should know and understand the obligations.
  • Unlike other forms of consumer debt, student loans cannot be discharged through bankruptcy except under extraordinary circumstances.
  • If you fail to make a payment on your student loan for an extended period, your loans may be placed into default.
  • A default on a federal student loan will require payment of additional costs, including collection costs, attorney’s fees, court costs, and additional interest. These costs may substantially increase the amount owed on your student loan.
  • No statutes of limitation apply to the collection of federal student loan debt. This means that your student loan debt may be collected many years, or decades, into the future.
  • The IRS may seize your tax refunds to repay a defaulted federal student loan.
  • Your future wages may be garnished to repay a defaulted federal student loan.
  • Your Social Security benefits may be garnished to repay a defaulted federal student loan.
  • Any disability benefits you receive may be garnished to repay a defaulted federal student loan.
  • A default on a federal student loan may result in the denial or revocation of a professional license, such as a license to practice medicine or law.

Written by Josh Keen, Office of Student Financial Aid

What are common tax mistakes made by college students?

One of the most common mistakes made by college students is that they think they are not required to file their income taxes–some students don’t even know if they have to file or not. The answer to this question is based on the word “income.” The student has to ask him or herself if they have earned any income. If the student is a single dependent and the total earned income for the year was less than $6,100, the student is not required to file their taxes. That doesn’t mean the student shouldn’t file; it just means they don’t have to. The reason why the student should probably file, even if their income falls under $6,100, is because they may get back all or some of the money that was withheld (IRS.gov covers this in more detail). If the student does file, it’s important to avoid mistakes. Mistakes slow down refunds and draw attention to you with the IRS.

Another common mistake is claiming the wrong dependent status. If the student’s parents are already claiming him/her as a dependent then the student should not make the mistake of claiming themselves as a dependent.

Also, many students miss out on education deductions. Whoever pays the student’s tuition (including themselves) can claim certain education-related deductions including those for tuition and fees.

Lastly, some students fail to account for dual state income. If you live in one state, attend school in another, and work in both, you will have to account for the income (and taxes paid) from both states. For example, a student may live in Wisconsin but attend college at the University of Illinois at Urbana-Champaign. Since she is a resident of Wisconsin, she will have to claim all of her income there, including the income from Illinois. However, she will get a credit for taxes paid on income in Illinois.

Written by Cindy Garcia, Financial Wellness Peer Educator, University of Illinois Extension

Is there a limit to how much I can borrow in subsidized or unsubsidized loans?

Undergraduate and graduate students that borrow Federal Direct Student Loans (subsidized and/or unsubsidized) need to be aware there are maximum allowable loan limits. There is an annual maximum loan limit which restricts the total amount a student can borrow for an academic year (fall, spring, and summer). Also, there are aggregate maximum loan limits which restrict the amount a student can borrow over their college career.

Maximum Loan LimitsWritten by Josh Keen, Office of Student Financial Aid